4 minute read 11 Mar 2019
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How blockchain can help turn supply chain into a networked value chain

By

EY Global

Multidisciplinary professional services organization

4 minute read 11 Mar 2019

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Organizations can hit new heights of customer service and operational efficiency, with newer levels of trust and collaboration.

The supply chain of the future is a networked value chain. If organizations can achieve this, it will give them competitive advantage by hitting new heights of customer service and operational efficiency, with new levels of trust and collaboration, all at a much lower cost.

We already have the building blocks: the Internet of Things (IoT) is producing data, such as delivery events and tracking information, from every partner involved in the supply ecosystem. Bringing them all together in the cloud and making relevant data accessible to supply chain partners — via a web-based portal or data exchange — helps linear supply chains evolve into networked value chains.

But it is blockchain that will really make it happen.

The networked value chain nirvana

Many organizations also believe that a networked value chain is supply chain nirvana. So how do we get there?

First, we need to think through the connectivity options within our supplier network. Those options might include electronic data interchange (EDI), direct and read-only database connectivity from various suppliers via application program interface (API), or direct connectivity through a network or a peer-to-peer (P2P) platform.

This is only a necessary foundation, though. From there, next-generation track-and-trace solutions will need to quickly incorporate new technologies, such as multipurpose IoT sensors and blockchain, to achieve higher security and to improve error-checking and the validity of transactions.

Blockchain (whether public or private) inherently provides higher levels of error checking and transaction validity than shared databases. However, this merely scratches the surface of blockchain’s potential. The real value comes with the addition of smart contracts into the blockchain.

Blockchain and smart contracts

Smart contracts codify a set of rules for interaction among parties — in this case, it includes everyone involved in the supply chain ecosystem. When the rules are met, the agreement is automatically enforced.

It’s a straightforward form of decentralized automation: the smart contract provides complete documentation of all transactions (e.g., delivery steps), with a unique time stamp and encryption to prevent tampering. It also enables the free flow of data and payments. This introduces a whole new level of trust, simplicity and inter-reliance of value chain players rather than reliance on expensive intermediaries.

Think about this in the context of a couple of examples: a shipment received at a client site triggers an event that the smart contract recognizes as confirmed delivery. That recognition then initiates countdown of the 30-day payment terms. Alternatively, an insurance policy for a container could begin precisely at the moment it is loaded onto the ship, triggered by a unique time stamp in the smart contract.

EY teams have deployed blockchain with smart contracts in a couple of cases already. We analyzed a client’s complex e-commerce delivery business and created scalable blockchain services using Ethereum to improve the visibility of orders across the value chain and related stakeholders. This created greater transparency into the whereabouts of shipments, from manufacture to end consumer, supporting better dispute management and increased customer satisfaction. It represented a single source of truth for all participants in near real-time and supported real-time chain-of-custody auditing.

The teams also worked with a major global manufacturing company that had to manually deal with millions of rejected invoices every month, at a cost of $1.40 per invoice. Other technologies, such as robotic process automation (RPA) and optical character recognition (OCR), have not been able to handle this, so EY teams ran a proof of concept to digitalize contracts for transparency and accuracy across the value chain. It reduced, and in some cases eliminated, financial leakage through tighter controls and provided a single source of truth for tax determination. It also eliminated P2P invoice processes. This service can now be scaled to almost every region in which the organization operates.

We are only at the beginning of the blockchain and smart contracts journey to help enterprises realize the value of the networked value chain. However, one thing is clear — we can expect amazing developments along the way.

Smart contracts could make all the rules of supply chain obsolete. It can link manufacturers, distributors and end consumers. Goods might never get lost again. Disputes about delivery times will be a thing of the past. Customs processes will eventually be seamless and instantaneous.

Isn’t that a future worth creating?

Summary

The smart contracts that blockchain makes possible provide complete documentation of all transactions. This opens the door to a whole new level of trust and could make all the rules of supply chain obsolete.

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By

EY Global

Multidisciplinary professional services organization